Sri Lanka may have to push IMF budget targets to 2020 or beyond

Feb 25, 2019 06:23 AM GMT+0530 | 0 Comment(s)

ECONOMYNEXT- Sri Lanka may have to renegotiate a more realistic budget deficit target for 2019 and beyond under a 1.5 billion dollar balance of payments relief program with the International Monetary Fund, an economist said.

"The consolidation is slower than the IMF forecast," Standard Chartered Bank South Asia Economist Saurav Anand said at a media briefing.

Sri Lanka was expected to reach a budget deficit of 3.6 percent in 2019 under the last staff level agreement between the state and the IMF.

"This may be pushed to 2020 or beyond," Anand said.

An IMF team is currently in Colombo to discuss the next staff-level agreement.

The staff-level agreement was supposed to be finalised in October, but a political crisis engineered by President Sirisena and Former President Mahinda Rajapaksa halted the proceedings.

"There will be a compromise," he said, expecting the talks between the state and IMF to end positively.

He said Sri Lanka will have to set a more realistic budget target.

Sri Lanka may extend the IMF program as well, he said.

Anand said despite 2019 being an election year, the government cannot afford to be loose with its fiscal or monetary policy, as there is little room in the economy with a peak in foreign debt repayment over the next four years, and high repayments from 2024-2027.

Despite low growth, fiscal and monetary policy will have to be kept tight, he said.

Standard Chartered is expecting Sri Lanka's growth to be 4.2 percent in 2019, up from 3-3.5 percent in 2018.

Growth is expected to go up to 4.5 percent in 2020, Anand said.

He said growth is still low, and Sri Lanka is likely to face a tough year.

Anand said Sri Lanka must increase growth to manage debt by reducing the debt to gross domestic product ratio. (Colombo/Feb25/2019-SB)